business relationship for lease transactions is an international issue - accountants have been bear on about a proper method of lease accounting for well-nigh 50 years now.
The concern springs up from the of the eye(p) accounting rule that transactions ought to be recorded as per their intrinsic substance, and not merely base on their well-grounded form. The legal form of every lease transaction is an plus renting transaction. However, in substance, many lease transactions, particularly fiscal lease transactions, create for the lessee an interest in an asset almost standardised to bought assets, and a liability to pay to the lessor almost similar to those in a loan transaction. Similarly, for the lessor, though he plain receives a rental income, the substance of his receipts is closer to convalescence of principal and interest on outstanding principal, then an income by hiring out assets.
Thus, accounting standards on lease accounting are concerned with (a) distinguishing leases between monetary transactions and asset-renting transactions based on the substance of the lease; and (b) having found the substance, in applying a finance-based accounting if the substance is found to be a financial transaction, and an asset-renting based accounting, if the substance is not plain financing.
snatch present for more on the substance of a financial lease.
This is the essence of accounting standards on leasing in most countries - the basic burn up underlying FASB-13 (USA), or IAS-17 (International Accounting Standards Committee) or SSAP-21 (UK), is this.
Recently, however, McGregor has made a proposal for eliminating the present distinction between financial and operating(a) leases and putting operating leases also as if it were an asset of the user. Click here for an article on these proposals and the proposed changes in IAS-17 based on McGregors paper.
2. Indian and international accounting standards compared:
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